Here is an update on my strategy 2 tracking. I created a link since the tables here don't seem to load well.

http://www.goble.org/strat2

Dave

Good to hear from you again, Dave! It's been awhile. Don't be a stranger.

Larry

Hi Larry - I've just been laying low. I've limited my investing to just following the COT. I seem to lose less that way.

Dave

I have updated the link above with numbers through April 1, 2005.

Note: My 3 year number for the S&P 500 was wrong on my last posting. I appologize for the miscalculation. Of course I don't guarantee the accuracy of the numbers I currently have.

I have updated the link above with the status through May 20. The one and two year strategy two returns are the worst they have been in the last 10 years. However, the 3, 4, 5, and 10 year returns well surpass a S&P 500 buy and hold strategy.

Dave

The link above has been updated with the latest chart. Some notes:

- The three year return for the S&P 500 has surpassed the strategy 2 2/1 (S2) leverage return. This is the first time this has occurred (since my chart which goes back to 1996 for the three year return). That currently makes the 1, 2, and 3 return better for the S&P 500.

- The 2, 3, 5, and 10 year S2 returns are at their lowest levels in the last 5 years.

I'm still hanging in there. I'm hoping things look better as we start the second half of the year.

Dave

The above link has been updated through July 22, 2005.

Most of my investments following the COT fall into the 2 year category. Not a pretty sight.

It sure would be hard to convince anyone new that the COT is a good investment tool. According to my numbers the returns on the COT strat 2 2/1 (S2) are at lows for the 1, 2, 5, and almost 3 and 10 year returns (within the last 10 years.)

The current 1, 2, and 3 year S&P 500 returns clearly beat the current S2 returns. The opposite is true for the 4, 5, and 10 year. I sure hope the 4 year does not switch to the S&P 500 advantage in the near future.

<It sure would be hard to convince anyone new that the COT is a good investment tool.>
You got that right! And I ain't new.

I've been short since August 2003. And leveraged-short a couple times.

Is there someone out there that was long during this time? Could you contact me about maybe splitting your profits with me? Thanks.

Before anyone asks if I had all my eggs in one basket, I also had positions in gold and bonds (and lost!)

But at least the losses are strung out during a long period of time compared to a short visit to Vegas.

Don't worry guys, the end of this bull streak is coming to an end, because I'm starting to think about using some old unheged long strategies and I've never been right yet.
h

The main reason I keep this forum on Network 54 is to keep a record of these posts. They're going to be the inspiration for a great book one of these days.

Larry

<They're going to be the inspiration for a great book one of these days.>
Will we get free copies, since we're the contributors? :-p

Larry,
I'd be happy to contribute to the chapter on neurosis; oops, I already did.
h

The working title is:

"It sure would be hard to convince anyone new that the COT is a good investment tool."

It's probably not catchy enough. I need to work on it. Something like "Why you want to stay away from anything that people consider a 'good investment tool.'"

Larry

How about, "If you want to lose money with a lot of people, don't read this book." Still too long I guess.
It's amazing how much you can learn about yourself by investing. We really ought to be teaching this in schools. It makes fear and greed so manifest that they can be examined. It's also a forgiving teacher in a way; you always have another chance - if you kept some powder dry.
A year ago, I would not be able to joke that the market was about to turn because I was about to join in; I would be doing it. Today I can see myself wanting to do rather than doing and in that observing ego I can find the wisdom to stay the course, asking for help when weak, and feeling a sense of accomplishment in "climbing a wall of worry".
It really makes me appreciate your work Larry. You've help a lot of people more than they know.
h

Howard,

I totally agree that trading is a great metaphor for life. There’s an “instant karma” thing going on that the astute observer can use to learn about himself. And the more you honestly look inward, the more clearly you see the world. (Am I channeling Yoda now or what?)

Anyway – once you realize that the goal is NOT to make money but to trade well AND… you and you alone are responsible for what happens in your trading account (even if something happens that’s not your fault) THEN you are a real trader – then the money will flow toward you.
(Okay, I’m definitely channeling SOMEbody!)

Larry, re: your book title, how about:

“Trading The COT – the toughest path to easy money!”


-ja

I have not updated my chart online but my spreadsheet now shows the buy and hold S&P 500 strategy beating the stategy #2 (2/1 leveraged) in the 1,2,3, and 4 year history. It was only nine weeks ago since the three year history went to the S&P 500 strategy. Is the five year not too far off?

Just wondering if I'll ever see a profit anytime soon following this strategy. (I've been with it for 2 years now. sigh.)

Dave

Just an interesting observation on human behavior. Has anyone recognized how hard it is to go against the crowd. Whether its the consensuses opinion of the talking heads on CNBC during the bubble bursting or the COT strategy here on Larry's site. The mindset seems to be it's OK to lose as long as everyone else is losing and just in case the crowd is right I'll still be on the winning side. I guess that's why most people lost big money from 2000-2003. Nobody was willing to go against the prevailing crowd opinion. I wonder if a lot of commoditity bulls will end up riding it down and losing most of their profits whenever the end does finally come. Hopefully the end won't come for a while yet.

Anyone using the COT could have/still can use a simple stop along the same lines as strategy 5. Exit COT positions if the S&P closes the week above where the COT signalled short. Only enter if the weekly close goes back below the point were the COT signalled short. I haven't tested it but it doesn't seem like it would have produced any more whipsaws than strategy 5. The weakness that I see in any compounding strategy is that one large loss of say 40-50% could wipe out 5-10 years of great returns. Of course if you weren't around for those first 15 great years all the worse. Seems like some kind of stop loss anytime an investor is short is important.
Just some contrarian thoughts for the weekend

Dave,

You and I have had this conversation on the forum off and on for a year or two now. I would have to do a search to find the posts, but more than once I’ve cautioned you about the risk of staying constantly leveraged.

I can tell that all you’re doing at this point is “hoping” -- hoping the market will come your way so you can recover your losses. That’s a loser’s game, Dave. And it’s a sure sign that you should get out your position. Or, as the old pros used to say, at least “sell down to the sleeping point.”

Gary,

Ah…oh, never mind.

Larry

After rereading my post I think maybe I came across as saying that the COT was not a good strategy. Not what I meant at all. I was just observing that sometimes it seems hard for people to go against the crowd opinion. In the case of the COT it seems that Larry has made such a good case for the COT that perhaps some people that may not be mentally or financially suited to withstand the drawdowns are following it unquestioningly when perhaps they are the type of person who needs a stop loss with this system. That is something everybody has to answer for themselves. I'm just guessing, but someone who takes a 20% drawdown on a 10 million dollar portfolio is probably not as nervous and more able to stay disiplined than the investor who takes that same drawdown on a $50,000 account that took him 15 years to save. Obviously I'm just pulling numbers out of the air as an example.

Gary

Larry, in your response to Dave you wrote (in part):

"I can tell that all you’re doing at this point is “hoping” -- hoping the market will come your way so you can recover your losses. That’s a loser’s game, Dave. And it’s a sure sign that you should get out your position. Or, as the old pros used to say, at least 'sell down to the sleeping point.'"

There is clearly something I am missing here.

How is it a "loser's game" if Dave is following a COT approach and riding through the drawdown? Unless I am badly mistaken it seems to me that this method is based not on how you feel but on what you do - playing the "edge" the COT has offered for a number of years.

Wouldn't Dave lose by selling out now instead of following the long term plan and playing "the odds" that the COT will more often be right than wrong?

Or are you referring to the idea that if he isn't committed to his plan such that emotionally he is too uncomfortable then he would do better to pull his money out and do something more emotionally comfortable and therefore hopefully more profitable?

The reason I ask is because if anytime a drawdown makes you feel bad and you close your position, that would make following several of the COT methods not practical it seems to me.

I apologize for not doing a search on your former discussions with Dave on this but finally decided I might still not understand what you mean. So I hope you don't mind my asking directly.

Thank you.

Clint,

Very good question. I should have elaborated more.

I wasn’t referring to the system at all. The system is now getting close to 20 years old and it has had a little over two years of drawdowns, the bulk of which occurred from July 2003 to early 2004. You will never find a high-profit method that doesn’t experience those kind of drawdowns.

You’re absolutely right about the importance of sticking to a plan and playing your edge. We must remember that an edge is nothing more than the likelihood of one thing happening over another (Truth No. 4). And you act on your edges without reservation or hesitation (Principle No. 4). But you also predefine the risk of every trade (Principle No. 2) because anything can happen (Truth No. 1).

Now there’s two ways to predefine risk. You can either use some kind of a stop loss based on price or account equity. Or you can use asset allocation which is my preferred method with the COT.

Dave can speak for himself if he chooses, but I don’t think he’s been doing it that way. I think he’s been 2/1 leveraged the whole time and, not only that, I think he may have been short the Nasdaq, not the S&P. You can suffer some really serious losses being constantly short the Nasdaq with 2/1 leverage. And there is no COT strategy that suggests doing it that way. In fact, I’ve warned against it on numerous occasions.

Also, people shouldn’t follow any system they’re not completely comfortable with. People should do their own due diligence and make their own decisions and not base their decision solely on a track record and certainly not because Larry Holmes, or anybody else, is a big believer in a method.

So to summarize what I was trying to say so there’s no misunderstanding..

1. Follow the rules of your system or don’t follow it at all.

2. Manage money. Predefine your risk (by price, account equity, or asset allocation) and when it gets to your risk point, get out.

3. If you’re not comfortable with what you’re doing, get out. For goodness sakes, don’t just “hope” everything will work out in the end. That’s a sure loser’s game.

Larry

I very much appreciate your taking the time to clarify this issue for me.

Your answer matches what I understood to be the case.

Thank you.

First a few things:

1. I've updated the table in the link at the top
2. I've been following strat 2 (2/1 leveraged) for about 2 years. The first year with the NASDAQ and the last year with the S&P 500.
3. I've been following the strategy straight up. No stops. None of the past performance charts use stops. If I did then it would alter the returns plus I'd have to devise a method to get back in.
4. Previously to following the COT I was mainly a buy and hold trader. I speculated on a few stocks and even rode the Internet companies up then down.
5. I've tried being an active trader with no success.

That being said, I'm not sure what is bad about feeling a bit down about following the COT the last two years. I've spent a lot of time recreating the return charts that Larry has posted on his site. I track it weekly. According to past performance it still beats the buy and hold S&P 500 in the long run. However the shorter term is beat by the buy and hold strat. (Which happens to be when I jumped in.)

I take complete responsibility for my decisions. I don't blame anyone for my current loses. I'm just trying to do the best with my capital.

Larry wrote: For goodness sakes, don’t just “hope” everything will work out in the end. That’s a sure loser’s game.

Aren't we all "hoping" for the past to help predict the future? Is that not what we are doing with the COT? Is the difference between hoping and believing is that you feel bad when you are losing while hoping and you feel OK when you are losing when you beleive?

Are you saying that if I am truly comfortable following the COT I should not have any ill feelings about not having made a dime yet?

Dave (continuing to track and follow the COT)

This was from todays Innerworth newsletter. What a coincidence, this was exactly the point I was trying to make with my post.

"Flexible and Open As students of the markets, it's informative to study everyday examples of mass psychology. Although humans are highly intelligent, they can act like cattle blindly following the leader of the pack to the slaughterhouse. For example, have you ever observed how people drive in busy rush hour traffic? On a crowded freeway, it's common to see people refuse to acknowledge that the flow of traffic has slowed from 65 to 35 miles per hour. There's nothing they can do but patiently wait for the speed to pick up again. Rather than flexibly considering realistic alternatives, however, they waste time switching lanes in a fruitless attempt to make up the time they've lost. Similarly, on a congested downtown street, frustrated drivers are willing to turn into a busy intersection even though there is no way to complete the turn before the light changes. Soon they are stuck in the middle of the intersection, and they and everyone trying to cross the intersection are trapped. When people find themselves as merely one of the masses, rather than an individual, they lose all reason. They act emotionally and on impulse. It's as if they are on automatic pilot. This is true in everyday life and it's true in the trading arena. When you see everyone else buying, you have a strong urge to buy. When you see everyone else selling, you have a strong impulse to sell before the price falls so low that you can't sell. In many ways, following the crowd is a close-minded, rigid way to live. Rather than look inward at one's intuitive desires, a person blindly follows what everyone else is doing. But the astute trader isn't swayed by the masses. The astute trader is a rugged individualist who goes his or her own way, staying flexible and open in the process.


There is safety in numbers. We follow the crowd out of fear. We try to control the world because we are afraid of chaos. But the quest for certainty usually leads to rigidity. And when you are closed off from the creative parts of your intuitive mind, it's hard to trade the markets innovatively and with the carefree mindset characteristic of traders at the top of their game.
How can you trade more freely and creatively? First, manage risk. Rigidity reflects fear, and if you trade with money that you can't afford to lose, you will know deep down that you really can't lose. If you risk relatively little on a trade, however, you'll feel more at ease.
Second, try to cultivate a carefree attitude. Don't make everything so personal. Trading doesn't have to be about your self-worth or abilities. Remember, no matter what happens, you have inner worth. Stay emotionally detached. The more you can remove your ego from trading, the more you can enjoy the process of trading. When you ease up, you'll feel as if a weight has been lifted. Suddenly, you'll see trading opportunities that were illusive before. When you take some of the pressure off of yourself, you allow your mind to expand. Your vision becomes clearer and you think creatively and intuitively.
Third, accept your limitations. Don't try to live up to unrealistic standards. Rigid traders believe they can force the markets to do what they want. It's just like a frustrated driver trying to travel at 55 miles an hour when a chemical spill on the freeway has created a traffic jam. It isn't going to happen. It's better to realize that you are human, and there are those times when there is nothing you can do to change matters. In the end, you must accept the fact that you can't control the whole world, and similarly, you can't turn yourself into something you are not. The irony is that you probably are quite intelligent and creative. But when you force yourself to be intelligent and creative, you stifle these qualities. By accepting life circumstances and personal limitations, you unleash talents that are suppressed.
So remember, you're human. You don't need to be right all the time, and you don't need to fully control things you can't control. Be human. Accept your limitations. When you do, you'll free up psychological energy that you can use to trade creatively and profitably."

Gary